Introduction:

It is very well known that International Taxation is one of the most difficult and complex matters to assemble and simplify. The internationalization of business, the multiplicity of taxpayer’s contracts with different countries, the functional, organizational and economic complexities associated with modern commerce, brought various challenges to the notion of the international tax order. Also, the numerous diverse tax provisions that many countries impose to resident and non-resident business entities, had nested many hazards. For example the increase of tax evasion, the potential discouragement to trade with other entities around the world, deterioration between countries good relationships and most important of all, a serious decline on the economic interests of business. Therefore, the path that significantly mitigates the potential aforementioned perils in this globalized environment is the mutual signature, ratification and implementation of Double Tax Treaties.

The Republic of Cyprus is an established international financial and business centre, being a member of the EU and the Eurozone and strategically situated at the Eastern end of the European Union. Cyprus offers itself as an ideal location for investing, setting up a holding company and generally serves as a gateway for routing investments anywhere in the world. The Republic of Cyprus has created a very attractive environment for Foreign Direct Investments (FDI) through its EU harmonized legislation, favourable tax regime as well as its excellent organization facilities and services. On the taxation side, the Republic of Cyprus offers a combination of low corporate tax along with an extensive network of double tax treaties. This helps to facilitate tax optimisation and maximise after tax returns to investors. It is not a coincidence that the most important sector of the Cypriot economy is “services”, including tourism and financial services, from which around 70% of the Gross Domestic Product (GDP) is generated. In addition to the above, it is worth mentioning that Cyprus is distinguished in the sector of shipping having presently the one and only EU approved tonnage tax which has made the island an even more attractive destination for the whole of the industry. It would come as no surprise if these developments lift Cyprus from the 3rd place within EU states to an even higher. Based on the latest data of the Central Bank of Cyprus the Republic of Cyprus was in 2011 one of the most attractive locations for foreign investments, indicating both high FDI performance as well as high FDI prospective. The term “Foreign Direct Investment” reflects the involvement of more than 10% in the share capital of an enterprise resident in one country, by an investor resident in a different country (direct investor) and indicates the presence of a long-term interest on the part of the foreign investor. The strong combination of the Republic of Cyprus economy with the rest of the world is mirrored in its high FDI Intensity which goes beyond that of the European Union average in every year since 2006. In 2009 FDI in the Republic of Cyprus reached 2.5 billion euro but fell back to just under 800 million in 2010-2011 as an outcome of the worldwide financial crisis. The confirmation of significant reserves of natural gas in Cyprus’ Exclusive Economic Zone towards the end of 2011 in conjunction with the adoption of some appealing amendments recently introduced into the island’s legislative framework have led to a significant growth in interest for FDI into Cyprus despite the present economic challenges that the island faces. It has to be said that the country is prepared and determined to take every measure necessary for a fast and solid recovery, to which the N. Gas reserves are certainly expected to play an important role.